"To get rich is glorious." -- Deng Xiaoping. This is perhaps the smartest thing ever uttered by a member of the Communist Party.

Wednesday, July 15, 2009

The anti-stimulus package

Just as tax cuts and government spending have the power to provide stimulus to an economy (with the spending more of an ephemeral, sugar rush type jolt) so can tax increases and regulation achieve an opposite effect.

While most people are familiar with the $787 billion spending package passed earlier this year, let's take a look at some of the other measures that have either been passed or are working their way through Congress:

This morning the Senate health committee passed a piece of health care legislation. Among its provisions include a mandate for most businesses to "offer insurance to workers or pay a $750 annual fee per full-time employee."

House Democrats, meanwhile, have announced a plan that would "force the richest 2 million U.S. taxpayers to shoulder much of the cost of an expansion of the nation's health-care system, by imposing a surtax of as much as 5.4 percent on income above $350,000 a year."

Later this month the minimum wage will increase to $7.25. This is a 41% increase since a three-step hike was approved by the Democratic Congress in May 2007.

An energy bill was passed last month that the Environmental Protection Agency estimates will cost the average household around $200 a year through 2020. Other estimates run higher.

At least some of President Bush's tax cuts are will be allowed to expire next year.

What we broadly see are tax increases and regulations that will bring higher costs. Taxes are a disincentive to economic activity. If you make workers more expensive through higher minimum wage costs and mandates health care premiums employers are less likely to hire them. If you tax work and production at a higher rate you are likely to get less of it (or simply increase efforts to dodge taxes through loopholes).

At a time of economic recession and talk of a jobless recovery we are witnessing the enactment of policies that disincentivize work and hiring. I will be surprised if this ends well.

Update: Yikes, while the Senate version of the health care bill would force employers with at least 25 employees to provide health insurance the House version would apply to those with a payroll of at least $250,000.